Barbarians at the Gate (81 page)

The clock beside Jim Maher’s desk read four-fifteen when Mel Klein finally got the Pritzkers on the line.

Klein quickly explained the situation. “Guys, we’ve got to make the commitment now. No one else can write a check for this in five minutes.”

There was silence on the other end of the line.

“Jay, Tom, we’re here now,” Klein said. “We’re ready to go. We need a commitment for another $200 million.”

Jay Pritzker spoke. “Mel, is there another choice?” Klein knew it was probably twice the largest commitment the Pritzker family had ever made.

Klein was looking out the window. “Jay, you’re in Florida and Tom, you’re in California. I don’t know if either of you is looking at the sunset.” Klein turned to Maher, who stood unsmiling by his desk. “I’m looking at Jim Maher. And there’s only one thing he wants to hear to enable us to go forward with the First Boston offer. And that’s, we need to hear you are behind the Resource Holdings equity.”

Again there was silence on the line. “Mel, that’s a lot of money,” Tom Pritzker said.

“I know, fellas, that’s why I’m talking to you. We need to know.”

“Is there any other alternative?” Jay Pritzker asked again.

“No, not at this point.”

“Are we morally obligated to First Boston for this?” Tom Pritzker asked.

Klein thought for a moment. He glanced at Maher. “Yes.”

“Do you think First Boston thinks we should step forward with the equity?”

“Yes.”

There was a long silence. Mel Klein held his breath.

“Dad…” Tom Pritzker began.

“I know,” Jay Pritzker said. “That’s it. We’ll do it.”

Klein exhaled. “Thanks, guys.”

He hung up and turned to Maher, who stood by his desk like a cigarstore Indian. “That’s it. The Pritzkers are committed for the whole thing.”

For the first time that day, Maher had a reason to smile.

No one was concerned about First Boston. From his bank contacts Kravis knew of Maher’s mounting problems. Mel Klein had kept calling, and now it sounded as if First Boston might have some interest in a minority share of the Kohlberg Kravis deal; Kravis knew a sign of weakness when he saw one. Through a clever ruse, they had also learned of a consensus forming among Atkins and the board attorneys that First Boston’s monetization scheme was almost certainly unworkable. Dick Beattie had simply had his tax attorneys call up and ask about trying the same thing. Don’t try it, they were told, it’ll never work.

Afterward Kravis and Roberts convened the informal roundtable in Kravis’s corner office. The associates were so tired of these talks they dubbed them “the circle jerks.” Starting with Scott Stuart, they went around the room, each man offering his viewpoint one final time: Should we do it? Stuart and Cliff Robbins gave qualified thumbs-ups. Ted Ammon was on the fence. Bob MacDonnell, the general partner from San Francisco, pushed hard, extolling at length the values of brand names like Oreo, Nabisco, and Ritz. Paul Raether was ready to bid.

So was Henry Kravis. After a week of keeping his own counsel, Kravis was prepared to lead the final charge. No one in the room was surprised. Those who knew Kravis best never believed he could let go a deal this size. And if we bid, Kravis emphasized, we bid to win.

Finally George Roberts spoke. “I think we should all ask ourselves, ‘Is this really worth all the headaches? Do we really want to do this to ourselves?’ We’re going to take a lot of heat from Washington, a lot of heat from our partners.” Roberts looked at each man in the room as he
spoke. “The one thing I don’t want to see happen is for this company to get in trouble. It could end the whole thing, the whole industry. I’m just not comfortable with the idea we have to do this deal.”

Roberts’s speech left them at an impasse. It wasn’t often that Kravis and Roberts openly disagreed. Several in the room exchanged anxious looks. What now?

“Look,” Kravis said, “we founded this firm on the basis that George and I are going to agree on everything or we’re not going to do it at all.” He turned to Roberts. “Maybe we ought to go off and talk about this ourselves for a while.” Roberts nodded.

For a moment the deal teetered there. Then Jamie Greene spoke. Greene, an associate in San Francisco, was in charge of assembling the billions in bank money Kohlberg Kravis would need if it bought RJR Nabisco. Among the Kravis troops, that gave Greene’s opinions added weight.

“Wait a minute, just wait a minute,” Greene said. “George, I just really think we ought to do this deal. Sure, it’s going to be tough to do. But I think this is a wonderful deal.”

It was the single, gung ho statement Roberts had been looking for for days, and it changed the whole mood. Within minutes they moved from discussing if they would bid, to how much they would bid.

“Okay,” Roberts said, “if we’re going to do this, it’s got to be safe. It’s got to be a lot less cash than we’ve been talking about. At the end of the day, the board’s not going to be too concerned with three or four more dollars in cash. They’re going to look at the higher value….

“And if it’s close,” Roberts continued, “we’ll win.”

For hours they worked on refining a financial structure, opting for safety by boosting the share of PIK securities and reducing the actual cash paid to shareholders. Several times an anxious Dick Beattie stuck his head into the room. “Damn it, give me the bid,” he said. “Time is running out here.”

“Go away, Dick,” Roberts said, smiling. “All you have to do is change a few numbers. We’ll let you know.”

Cohen later said he favored a bid of $102, maybe $103. Gutfreund, wary to the end about “deal heat,” actually wanted to reduce the bid, maybe $97, $98. In the end they split the difference. One hundred dollars a share—simply repeating their earlier bid—was felt to be a slap in the board’s face. The group believed some kind of raise was in order, if only to allow directors to save face for having extended the auction deadline. It wouldn’t do to further alienate the board, no doubt already incensed at Johnson’s
Time
debacle. In the end, Cohen and Gutfreund settled on $101, a $1 bump.

Later the strategy behind the bid would be hotly debated. Did Cohen and the others genuinely believe Kravis was bowing out of the bidding? “There is no question we were fooled,” recalled Jack Nusbaum, Cohen’s attorney and confidant. “No question. How could anyone say anything else?” According to Nusbaum, the key was Dick Beattie’s call to Cohen. “That’s what bagged us,” he said. “Beattie’s clear indication was that they were through. When he said it, Peter believed it…. We figured Kravis wouldn’t be there. We figured our only competition was First Boston.”

Chaz Phillips, the Salomon banker, recalled that “Hill felt the strongest that KKR wasn’t there.” Hill reluctantly concurs. “With Henry going to Vail,” he said, “there was a good sense that Henry [was] not hot on the case. That, in fact, was an excellent head fake.” As for Cohen, Hill says, “Peter firmly believed that KKR was not there. In his roots, he really did believe it.” According to Hill, when Cohen returned to New York from Brussels, “he said, he had reason to believe from Dick Beattie that KKR was out of it.”

Despite the recollections of Hill, Nusbaum, and others, Cohen insists he never believed Kravis had given up. “I always thought he was there,” Cohen said. “Hill was very cocky and sure he wasn’t going to be there. I told him, ‘We’re not going to make that assumption.’ I believed Henry was going to be there…. He goes to Vail for Thanksgiving every year. [Actually, it was only Kravis’s second Vail Thanksgiving.] All you had to have was a fax machine and you were in business.”

Debate aside, the truest indication of the management group’s belief was its final bid. Any competitor seeking RJR Nabisco would naturally seek to top the $100 bid already on the table. Cohen’s $101 was a tacit confirmation that, just as they had in the weeks before their initial announcement,
the management group once again expected no competition. “It was,” said Nusbaum, “our fatal error.”

“Hold on, just hold on,” Fennebresque repeated, “we’re trying to get it….”

It was after four-thirty when the Citibank team leader emerged from the dining room. Fennebresque was pacing nervously outside. “Thanks,” Fennebresque said, taking the letter and shaking the banker’s hand. “Thanks a lot.”

The letter was quickly inserted into the bid packet, which was then messengered over to Skadden. In its wake, Jim Maher was philosophical. The packet was nowhere near what he expected to produce. The monetization letter was, well, less than he had hoped. He told himself it had been a valiant effort. Their chances of success seemed minuscule but, Maher reasoned, he had beaten long odds before—just nine days earlier.

“Shit,” he said, “maybe it’ll happen again.”